Dealing with Medical Debt Through Bankruptcy

By
The Golden Law Group
|May 02, 2013

With today's economic conditions, serious injuries or illnesses can
cause serious financial upheaval. Prolonged ailments requiring long recovery
periods can deprive people of their ability to earn a living. It is common
knowledge that most people are one severe illness away from being in financial ruin.

It's true that many working Americans still have health insurance through
their employment. But millions of people have lost their jobs in the Great
Recession and the struggling economy that has followed the official end
of the recession. Even for those who are still employed, fewer employers
provide full health coverage - the kind that covers large expenses caused
by serious illnesses.

A Real Story about Medical Expenses

The story of Marsha and Simon Sutherland is a good example of the problem
of medical debt. The birth of their daughter, Ellie, was fraught with
complications. Ellie was sent to the neonatal intensive care unit (NICU)
just after she was born and stayed there for 25 days before going home.
The NICU stay cost the Sutherlands nearly $75,000, but their insurance
plans did not cover the medical expenses they incurred.

And that was only the beginning. For her entire life, Ellie had continual
medical problems. She was nearly deaf, couldn't sit up and was prone
to dangerously high fevers. By her second birthday, she began scratching
at her eyes and cheeks and biting her lip until she bled profusely.

Marsha and Simon did whatever they could to find out what was wrong with
their daughter. They made two trips to Johns Hopkins in Baltimore, seeking
to have her illnesses diagnosed. She underwent extensive blood panels
to determine whether there were missing genes. Meanwhile, Ellie visited
specialists in Florida on a weekly basis to address problems with her
hearing, eyes, spine and gastrointestinal system.

Both Marsha and Simon had health insurance through their respective employers.
Marsha was a full-time reading teacher at an Orange County public school,
and Simon was a manager for a pizza chain. However, their insurance companies
often sparred over which company would pay for expenses. Even though Marsha's
insurance had a $10,000 cap on out-of-pocket expenses, her insurer refused
to pay when the bills came due.

Taking care of Ellie became a full-time obligation, so Simon became the
sole breadwinner for the family. Aside from the medical expenses, paying
the mortgage was a struggle for the Sutherlands. They approached their
lender about a modification, only to be offered a plan with higher monthly
payments. A month after Ellie's second birthday, the Sutherlands filed
for bankruptcy.

Medical Debt under the U.S. Bankruptcy Code

Although creditors can seek legal judgments and even garnish wages to collect
on unpaid medical expenses, medical debt is considered unsecured debt
Under the U.S. Bankruptcy Code. This means that there is no property (such
as a house or a car) securing the debt.

As such, medical debts can be discharged in Chapter 7 or Chapter 13 bankruptcy
in the same fashion as credit card debt and personal loans. Depending
on your overall circumstances, you may qualify for Chapter 7 (called liquidation
bankruptcy) or Chapter 13 (wage earner's bankruptcy). Upon proper
application, you may seek court approval to obtain a discharge, thereby
eliminating your legal obligation to pay that debt.

If you are considering bankruptcy because of medical debts, you are among
a growing contingent seeking relief from oppressive costs and fees. According
to one study on bankruptcy filings, more than 60 percent of all bankruptcies
filed were due to medical debt. Debtors seeking bankruptcy protection
averaged $17,943 in medical expenses and 75 percent actually had health
insurance. Nevertheless, it is possible that many people have experiences
similar to the Sutherlands, where medical insurers refuse to pay legitimate claims.

Medical Debt in Today's Economy

It is debatable whether medical costs, by themselves, are actually causing
more people to file bankruptcy. There are no concrete studies on how such
costs affect payment of other family expenses, such as mortgages, utilities
and credit card debt. It is also unclear to what extent job losses contribute
to the problem. It should be noted, however, that the healthcare industry
has become so inflexible in negotiating debt settlements that lawsuits
have become the new normal. With more than 59 million uninsured Americans,
it is likely that "medical" bankruptcies will continue - at
least until federal health insurance reform fully takes effect.

If you or a loved one is burdened with medical debt, an experienced attorney
can provide the guidance and information necessary to make an informed
decision about bankruptcy.

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship.